Yesterday, the IRS and Treasury Department issued Notice 2007-86, which generally extends the transition relief for compliance with Section 409A through December 31, 2008. Section 409A affects all types of plans that involve (or are considered to involve) a deferral of compensation.
In the notice, the IRS and Treasury also confirmed that they expect to issue guidance regarding a correction program as soon as possible. This guidance is expected to provide methods by which some unintentional operational failures may be corrected in the same taxable year in which they occurred in order to avoid application of Section 409A, and other methods by which some unintentional operational failures may result in only limited amounts becoming includible in income and subject to additional taxes under Section 409A.
This latest round of transition relief does not affect the guidance provided in Notice 2007-78 regarding predetermined cashout features, or the guidance regarding the application of Section 409A(b), which imposes restrictions on certain trusts and other arrangements.
This much needed extension should give everyone the additional time that they need in order to analyze their plans and complete all of the changes necessary to bring arrangements into compliance with the final regulations issued in April 2007.
No Comprehensive Delay for FASB’s Fair Value Measurement Standard
In more deadline news, the FASB recently rejected suggestions that it delay the effective date of FAS 157, Fair Value Measurements (Sept. 2006). The FASB did, however, direct its staff to analyze whether to delay application of the standard for some items subject to measurement and to specific entities. As it now stands, FAS 157 is effective for fiscal years beginning after November 15, 2007.
As noted in this issue of KPMG’s Defining Issues, the possibilities that the FASB Staff may consider are deferring FAS 157’s requirements for:
– nonfinancial assets and liabilities other than derivatives within the scope of FAS 133;
– private entities; and
– smaller public companies below a yet-to-be determined size.
FAS 157 defines fair value as “the price that would be received for an asset or paid to transfer a liability in a current market transaction between marketplace participants in the reference market for the asset or liability.” The new standard also establishes a framework for measuring fair value.
As a result of the upcoming effective date of FAS 157, companies will be expected to disclose the anticipated effects of adopting the standard in their MD&A, as well as possible disclosure in the notes to the financial statements under SAB 74, Disclosure Of The Impact That Recently Issued Accounting Standards Will Have On The Financial Statements Of The Registrant When Adopted in a Future Period.
Latest Developments in Capital Market Deals
We have posted the transcript from our recent webcast: “Latest Developments in Capital Market Deals.”
– Dave Lynn